AIA ENGEINEERING LIMLITED vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

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SCA/16130/2018HC GujaratGJHC24062560201801 March 2021Bench: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MR. JUSTICE ILESH J. VORA4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the reopening of the assessment was based on a change of opinion. The Court reasoned that when a claim or issue has already been examined at the original assessment stage, the Assessing Officer cannot resort to reopening to re-examine the same facts. The Court found that the materials on record, particularly the reasons for reopening, indicated that the case was one of reopening based on a change of opinion. Consequently, the impugned notice under Section 148 of the Act was not sustainable in law. The writ application was allowed, and the impugned notice was quashed and set aside. The Court did not decide on the merits of the additions themselves but focused on the validity of the reopening process.

What were the facts?

The assessee, AIA Engineering Limited, filed a writ application challenging a notice issued by the Assistant Commissioner of Income Tax for Assessment Year 2011-12. The original assessment under Section 143(3) read with Section 144C was completed on May 25, 2015, assessing total income at Rs. 205,96,93,093. The reopening was proposed beyond four years. The original assessment included a transfer pricing adjustment of Rs. 34,11,19,295, despite an initial observation of Rs. 18,50,11,635. The reopening was based on two main counts: addition of Rs. 3,83,74,298 for unutilized CENVAT credit under Section 145A, and addition of Rs. 18,50,11,635 for profit earned by Vega Industries (Middle East) FZE. The Commissioner of Income Tax (Appeals) had deleted additions of Rs. 34,11,19,295 regarding Vega UAE and Rs. 1,91,49,551 regarding unutilized CENVAT credit. The Department appealed these deletions to the ITAT.

What were the issues?

1. Whether the reopening of assessment for Assessment Year 2011-12 under Section 148 of the Income Tax Act, 1961, is valid, considering it is beyond the period of four years from the end of the relevant assessment year? (Mixed question of law and fact, concerning Section 147 and Section 148). 2. Whether the reopening is based on a change of opinion by the Assessing Officer, given that the issues were examined during the original assessment? Assessee's Contentions: The assessee argued that the reopening was based on a change of opinion. They contended that the issues regarding unutilized CENVAT credit and profit from Vega Industries (Middle East) FZE were already examined during the original assessment. The assessee provided detailed submissions and justifications for both issues during the original assessment proceedings and subsequent notices. The tax audit report also contained disclosures relevant to these issues. Revenue's Contentions: The revenue's contentions are not explicitly detailed in the provided judgment excerpt, beyond the fact that they challenged the deletion of additions by the CIT(A) before the ITAT.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 145A,Section 148,Section 142(1),Section 92E

AI-generated summary — verify with the full judgment below

C/SCA/16130/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16130 of 2018 ========================================================== AIA ENGEINEERING LIMLITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) WITH MR KARAN SANGHANI, ADVOCATEfor the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA

Date : 01/03/2021

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ­application under Article 226 of the Constitution of India, the writ­applicant [assessee] has prayed for the following reliefs:­ 7(a) quash and set aside the impugned notice at Annexure “A” to this petition; (b) pending the admission, hearing and final disposal of this petition, to   stay   the   implementation   and   operation   of   the   notice   at Annexure “A” to this petition and stay the further proceedings for the Asst. Year 2011­12; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition. 2. The relevant assessment year is 2011­12.  The present litigation is one of scrutiny assessment under Section­143(3) of the Income Tax Act, 1961 [for short 'The Act,1961']. Indisputably, the reopening as proposed Page 1 of 4

C/SCA/16130/2018 ORDER is beyond the period of four years. 3. It   appears   from   the   materials   on   record   that   the   original assessment order dated 25/05/2015 was passed under Section­143(3) read   with   Section­144C   of   the   Act,   whereby,   the   total   income   was assessed   at   Rs.205,96,93,093/­   after   making   various   additions.   It   is brought to our notice that the then Assessing Officer categorically made an observation as to the amount of Rs.18,50,11,635/­  in respect of transfer pricing adjustment on account of international transaction, but consciously   chose   to   make   an   addition   of   larger   amount   of Rs.34,11,19,295/­ in respect of the same. 4. We have heard Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the writ­applicant and Ms. Mauna Bhatt, the learned senior standing counsel assisted by Mr. Karan Sanghani, the learned counsel appearing for the revenue. 5. The reopening is broadly on the following counts:­ ✔ Addition of Rs.3,83,74,298/­ is to be made under section 145A of the Act in respect of unutilized CENVAT credit; ✔ Addition of Rs.18,50,11,635/­ is to be made in respect of profit earned by Vega Industries (Middle East) FZE. As regards the first issue of unutilized CENVAT credit u/s 145A of the Act,   during   the   year   under   consideration,   the   writ­applicant  had followed “Exclusive method” of accounting. The opening balance and closing balance of “unutilized CENVAT credit” were Rs.3,83,74,298/­ and   Rs.5,75,23,849/­   respectively.   Tax   Audit   Report   contained following disclosures in respect of the same: ✔ Clause   12   read   with  Statement  No.1   –  Even   if   “Inclusive method” of accounting is followed in accordance with section 145A of the Act, it would be “revenue neutral”; ✔ Clause 22 read with Statement No.6, Note No.2 – Balance of Page 2 of 4

C/SCA/16130/2018 ORDER MODVAT credit was shown in “Balance­sheet” as “Current Assets” under the head “Loans and Advances”; ✔ SCN   dated  11.08.14   –Method   of valuation  of  stock  as  per S.145A (Point No.17); ✔ Reply – letter dated 09.09.14 (Point No.2). It was submitted that even if adjustment is made in terms of section 145A of the Act, then also the same would be revenue neutral as is evident from “Statement No.1” annexed to the “Tax Audit Report”. ✔ II SCN – dated 16.12.14 issued under section 142(1) of the Act, again called upon the writ­applicant to furnish details of unutilized CENVAT credit (Point No.3). ✔ Reply   –   letter   dated   22.12.14,   again   furnished   complete justification as to why no addition is called for under section 145A of the Act (Point No.3). ✔ The writ­applicant, vide letter dated 12.03.15, made elaborate submissions w.r.t Un­utilized CENVAT credit – Point No.2: As regards second issue of w.r.t. Addition of Rs.18,50,11,635/­ is to be made in respect of profit earned by Vega Industries (Middle East) FZE, the   writ­applicant   entered   into   certain   international  transactions including   transactions   with   “Vega   Industries   (Middle   East)   F.Z.E., Ajman, UAE”  (hereinafter referred to as  “Vega UAE” for the sake of brevity). Such transactions appear in Form 3CEB containing report of an   accountant   under   section   92E   in   relation   to   international transactions. ✔ The then AO, vide notice dated 11.08.14, called for various details including details of international transactions (Point No.2); ✔ The writ­applicant, vide letter dated 22.08.14, stated that with respect to international transactions, copy of Form 3CEB along with annexures thereto was already submitted earlier vide letter dated 10.09.12 (Point No.2). ✔ SCN dated 05.03.15 came to be issued under section 142(1) of the Act, called upon the writ­applicant to furnish various details and information w.r.t. Vega Industries (Middle East) FZE in Azman Free Zone, UAE (Point No.1); ✔ The writ­applicant, vide letter dated 12.03.15, made elaborate submissions  w.r.t  Income  from  Vega Industries  (Middle  East) – Point No.1; The   writ­applicant   preferred   an   appeal   against   the   aforesaid Assessment   Order   and   the   learned   Commissioner   of   Income   Tax (Appeals), vide order dated 27.02.17, was pleased to delete following additions among other additions: Page 3 of 4

C/SCA/16130/2018 ORDER ✔ Addition of Rs.34,11,19,295/­ made in respect of profit of Vega UAE; ✔ Addition   of   Rs.1,91,49,551/­   made  in   respect  of   unutilized CENVAT credit. The   Department   has   preferred   an   appeal   bearing   ITA No.1112/Ahd/2017 against the order dated 27.02.17 passed by the CIT(A) before the ITAT wherein action as to deletion of both the above additions has been challenged by the Department (Please see Grounds “a” and “e” of appeal memo. 6. The short point for our consideration is whether the case is one of failure on the part of the writ­applicant as to full and true disclosure of all the material facts for the year under consideration? 7. Having regard to the materials on record, more particularly, the reasons   for   reopening,   we   are   of   the   view   that   the   case   is   one   of reopening based on change of opinion. It is settled position of law that when claim has already been examined at the original assessment stage, then   in   such   circumstances,   the   Assessing   Officer   cannot   resort   to reopening, more particularly, to re­examine other facts on the very same claim. 8. In the  overall view  of the  matter, we are convinced  that  the impugned notice under Section­148 of the Act is not sustainable in law. In view  of the aforesaid,  this  writ­application succeeds and is hereby allowed. The impugned notice is hereby quashed and set aside. (J. B. PARDIWALA, J) (ILESH J. VORA,J) A. B. VAGHELA Page 4 of 4

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